The December application by the Reserve Bank’s Prudential Authority (PA) to place insurer 3Sixty Life under curatorship is fast turning into a lesson on how not to go about the business of regulating.
Regulation in itself is a tricky business because, when done right, one need not see the regulator except when things go really bad. When done exceptionally well, things never really go so badly that the regulator has to make an appearance.
It’s about walking that fine line between fostering healthy competition and inclusivity in the sector while protecting vulnerable policyholders.
To maintain stakeholder confidence, it should be that when the regulator steps in, its actions are swift, precise and, most importantly, unimpeachable. This is whether it is an intervention to address a minor infraction or, as in this case, taking drastic measures to protect policyholders. It should leave all parties in no doubt that the action was fair and necessary.
Once it becomes a drawn-out affair in the courts, it not only results in a loss of public confidence, it also has a negative affect on the very policyholders the regulator is trying to protect.
In the case of 3Sixty Life, its management says the business has lost up to 20% of its revenue since December due to uncertain clients walking away. These losses are bound to affect the overall health of the business and its offering to policyholders.
And, if one takes into account the final report filed by the curator appointed by the PA, Yashoda Ram, these losses might yet prove to have been unnecessary.
3Sixty Life's loss in revenue since
December
— 20%
Ram, relying on the technical expertise of independent actuaries and property valuators, says in her report that the recapitalisation plan filed by 3Sixty with the PA, before the latter’s court application to place 3Sixty under curatorship, was enough to avoid curatorship.
And curatorship is something worth avoiding as more often than not it has led to liquidation — the worst possible outcome for all involved.
Ram’s report was the third bloody nose inflicted on the PA in this matter, and followed another unfortunate loss when judge Denise Fisher dismissed an application by the PA to remove the curator it had itself appointed.
Before this, Fisher had ruled that the curator engage and offer an opinion on the recapitalisation plan filed with the PA by 3Sixty. This was after it had become evident that the regulator had not applied its mind to the plan — it had rushed to court with an ex parte application for curatorship a day after 3Sixty submitted the plan.
The plan, in a nutshell, was for the sale of properties owned by 3Sixty to its own sole shareholder, Doves, for R122m. This would have allowed the company to raise more than the R86m needed to address solvency capital and minimum capital requirements.
The minimum capital requirement is the absolute minimum level of cash an insurer is meant to have to protect policyholders; the solvency capital requirement speaks to the level of solvency, taking into account risk, that an insurer should have.
Both speak to the company’s ability to honour say, and in the case of 3Sixty, both were breached in late 2020 as a consequence of increased death say brought on by the Covid-19 pandemic.
The whole of 2021 was spent with the insurer working together with the regulator trying to find a solution.
A critical question to ask is why the regulator, if it had already worked for so long with the company, did not do its due diligence on the plan presented to it by the struggling insurer
A critical question to ask is why the regulator, if it had already worked for so long with the company, did not do its due diligence on the plan presented to it by the struggling insurer.
In its original application, the PA said that despite having the whole of 2021 to rectify the issues, 3Sixty failed to do so, and the authority was no longer convinced that the company could rescue the situation without external assistance.
What worsened the situation, according to Suzette Vogeslang, the PA’s head of banking, insurance, co-operative financial institutions and financial market infrastructure supervision, was that policyholders started complaining to the PA that their say were not being honoured.
In the ensuing melee other concerns were raised, such as the possible use of funds for the benefit of leaders of the National Union of Metalworkers of SA — the union that most of 3Sixty’s policyholders come from — as well as complaints that members in Gqeberha were not getting their say paid out.
There were also complaints of reportable irregularities from 3Sixty’s own auditors, Sizwe Ntsaluba Gobodo Grant Thornton, that were filed with the Independent Regulatory Board of Auditors.
With all these matters, it would have been prudent for the regulator to ensure that it built up a formidable case, based on facts, before rushing to the courts in the manner that it did.
Anything but that leaves too many questions without answers, and they serve only to distract from the true purpose of the intervention.
And 3Sixty has seized the opportunity to allege that it is being maliciously targeted for being a black player in an industry that is dominated by white monopolies.
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